The article nonchalantly explains that people may want to reduce their income so they can get more goodies from the government.

People whose 2014 income will be a little too high to get subsidized health insurance from Covered California next year should start thinking now about ways to lower it to increase their odds of getting the valuable tax subsidy. “If they can adjust (their income), they should,” says Karen Pollitz, a senior fellow with the Kaiser Family Foundation. “It’s not cheating, it’s allowed.” Under the Affordable Care Act, if your 2014 income is between 138 and 400 percent of poverty level for your household size, you can purchase health insurance on a state-run exchange (such as Covered California) and receive a federal tax subsidy to offset all or part of your premium. …getting below the 400 percent poverty limit could save many thousands of dollars per year.

You may be thinking that this is just a theoretical problem, but the article cites a very real example.

To get a subsidy, the couple’s modified adjusted gross income for 2014 income would need to fall below $62,040, which is 400 percent of poverty for a family of two. …Proctor estimates that her 2014 household income will be $64,000, about $2,000 over the limit. If she and her husband could reduce their income to $62,000, they could get a tax subsidy of $1,207 per month to offset the purchase of health care on Covered California. That would reduce the price of a Kaiser Permanente bronze-level plan, similar to the replacement policy she was quoted, to $94 per month from $1,302 per month. Instead of paying more than $15,000 per year, the couple would pay about $1,100.

To put it in even simpler terms, this couple has figured out that they can get almost $14,000 of other people’s money by reducing how much they earn by just $2,000.

That, in a nutshell, is the perfect illustration of the welfare state. It tells people that they can get more by producing less. And the system is based on the theory that there will always be some suckers who work hard to provide the subsidies.

But as we’ve seen in Greece, Italy, Spain, and elsewhere, this system eventually breaks down as more and more people learn that it’s easier to ride in the wagon than it is to pull the wagon (as powerfully illustrated by these two cartoons).

And remember that the United States isn’t too far behind Europe’s welfare states.

Thanks to the plethora of welfare programs and income-redistribution schemes that already exist, millions of Americans have an incentive to earn less money and get trapped in government dependency. This graph, for instance, shows that various handouts mean that a single mom with $29,000 of income can be better off than a self-reliant person with $69,000 of income.

And a local CBS station discovered that a low-income household could be eligible for more than $80,000 of goodies from the government. Earning more money, though, would mean fewer handouts.

Remember Julia, the mythical moocher created by the Obama campaign to show the joys of government dependency? As illustrated by this Ramirez cartoon, Julia symbolizes the entitlement mentality. But the cartoon doesn’t go far enough. It should show how Julia decides to lead a less productive and less fulfilling life because she gets hooked on the heroin of handouts.

P.S. Some honest liberals recognize that redistribution can trap people in poverty.

12 Responses

Either working less, or reporting less. Sloth versus Fraud? Hey, why be so judgemental. I expect that just like sloth was expunged form political vocabulary (think “entitlements”, Julia video “likes”, etc.), fraud will be repositioned as “no-harm, no-foul” (think of the IRS and the means-testers swallowing the whostle). This will make fraud as “safe and rare” as abortion.

The descriptions do not cover the full magnitude of the disincentives.

Keep in mind that our couple does not simply have an incentive to forfeit an additional $2k in income.

Our beloved HopNChange couple has ZERO (actually below zero, NEGATIVE) incentive to earn any more until they can directly jump from an income level of $64k per year to an income above 85k/year.

This is because, if they leave the subsidy, they will have to pay their 15K annual insurance costs with AFTER tax money. Assuming they are in the 15% tax bracket, they would have to earn not only the 15K for the insurance, but also + $2,250 to cover rising federal taxes due to their increasing (read “greedy”) income, + $1,350 to cover rising California State taxes, + $2,295 to cover increasing self-employment taxes (*). To that I’m sure they will have to add other minor losses like “Partial loss of Child tax credit for xxx, loss of San Francisco municipal mortgage assistance to couples earning less than 120% average income, loss of garbage fee discount for middle income families…” etc. (I’m making the last few items up, but you get the idea, I’m sure that some of these additional disincentives exist one way or another).

These “cliffs” may indeed be glitches. Oddities that may or may not be ironed out in the future. But this is not the core issue. The core issue is that regardless of how you slice or dice the details, there is now a new reality in American redistribution ethics: There is a new redistribution program that gives your family a 15k per year subsidy (reminder: Average per capita world income is around $10k/year) which must be withdrawn as you become more greedy and your income rises from 100% to 400% of poverty level. This imposes an additional 15-20% marginal tax rate on the middle class’ work incentives — and on the more competent amongst them who will inevitably be called to pay for a large portion.

If you want a summary of your future, look at this graph comparing the trajectory of US prosperity growth compared to total humanity prosperity growth.

Is this a graph that implies that this is the time to reduce incentives to produce? To flatten the US effort-reward curve? To add an additional 15-20% marginal tax rate in the middle of your income scale?

Americans are used to the prosperity created by the productivity of relatively unadulterated effort-reward curves. They delusionally think that prosperity in the US more or less exists, and that improvements can be made to its (re) distribution. They fail to see that American exceptional prosperity is due to the selfish effort-reward curves that once resulted in one of the highest motivation environments in the world. ObamaCare pushes American effort-reward curves past the tipping point. The point where once superior American motivation to work drops below the level of its rising competitiors.

America’s fate is now sealed. America has held a production motivation advantage margin over the rest of the world. But that is now been lost. As loss of competitiveness on the world stage takes hold, jobs will become scarcer, prosperity will fail to grow at the rate of the rest of the world, and a general Euro-style malaise will descend upon a once much luckier American public who did not appreciate what it had and fell for the “shortcut-to-prosperity-through-coercive-collectivism”. Narratives will be developed as to why we need even more coercive collectivism. Desperate voters will jump to the most immediate source for immediate relief: Further redistribution at the ballot box.

The vicious cycle has now closed.

This is how America ends. Past the tipping point things progress fast. The longer effects of younger people altering their ambitions (below the level of their international competitors) in view of the new welfare guarantees and pitchfork witch-hunts are still to come. But come they will. 2008 WAS the tipping point. The point where the accumulating slowdown effects of past coercive collectivism, bring Obama to power, a European style politician, to fix things with even more coercive collectivism. The event horizon has passed.

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